DESPITE MAJOR tax increases, reductions in public services and extensive furloughs for state workers, California continues to face massive budget deficits. Over the next 18 months, the state's general fund is forecast to be $20.7 billion in the red.
The fiscal situation could get even worse. Gov. Arnold Schwarzenegger does not seem to recognize the likelihood that the state will lose a legal challenge to taking billions in redevelopment money from local governments, which will only add to California's problems. The state lost a similar suit two years ago and was forced to return redevelopment money.
The governor reportedly plans to balance the budget with continued furloughs, laying off state workers and further cuts to funding for education and other services. He also has vowed not to seek more tax increases.
Even worse, the governor is relying on $8 billion in cash from the federal government, above what the state already is slated to receive from stimulus money.
Earlier this year, the Obama administration made it clear that it was not about to bail out states with huge budget deficits. We hope the president continues that policy, especially for states whose budget woes are largely of their own making. It would set a dangerous precedent tempting other states to follow suit and more than likely undermine efforts to reform California's fiscal policies.
Besides, there is no way the Obama administration would be able to persuade American taxpayers in the middle of a deep recession that it was a good idea for them to pay for California's mistakes.
We are not the only state suffering from lower tax revenues, but we are the only one begging Washington for so much money, and that's just for next year. What about the year after and beyond?
California may need to consider at least some temporary tax increases and perhaps a permanent resumption of the motor vehicle registration tax. But the state must be careful not to undermine the growth and development of new businesses, which create jobs and tax revenues.
We already are a relatively high tax state, ranking 10th in combined state and local taxes as a percentage of income. California has some of the highest sales and income taxes in the nation. Our business taxes are the highest in the West and property taxes are above average despite the relatively low rates.
California may be able to help close the current deficit with some short-term tax increases, but it cannot tax its way out of trouble. Higher taxes discourage economic growth and give businesses further cause to leave the state or expand elsewhere, as many have.
This state is going to have to become far more efficient in delivering basic services. California spends well above the national average on prisons, welfare and large public works projects. Why?
Without greater efficiency in delivering services, setting aside more money in good economic times and avoiding wasteful projects such as the high-speed rail boondoggle and Bay Bridge fiasco, California faces a bleak future.
Most important, we are going to have to solve our own problems without asking American taxpayers in states with far fewer assets than California to bail us out.